Debit and Prepaid Cards Regulatory Framework

Notice

In May 2016 the Reserve Bank released three new standards on merchant pricing (surcharging), and interchange fees for credit, debit and prepaid cards. The standard on merchant pricing commenced on 1 September 2016 for large merchants and on 1 September 2017 for other merchants. The standards on interchange fees commenced on 1 July 2017. For more information please see the Questions & Answers page or the section on Payments Card Regulation.

Overview

In line with its approach to regulation, since the early 2000s the Bank has introduced a number of reforms which have regulated limited elements of designated debit and credit card systems, with the aim of improving the efficiency of the Australian payments system and promoting competition in the provision of payment services.

In short, the current debit card and prepaid card regulations:

  • cap debit card and prepaid card interchange fees to a weighted average of 8 cents per transaction, with a ceiling on individual interchange rates of 15 cents or 0.20 per cent if specified in percentage terms
  • remove restrictions so that merchants can pass on card acceptance costs to cardholders in the form of a surcharge
  • remove restrictions that require merchants to accept the debit cards of a scheme if they accept that scheme's credit cards and vice versa (through written Undertakings by MasterCard and Visa).

Together the regulations have increased transparency and promoted more efficient price signals, thereby improving payment choices and contributing to a more efficient payments system overall. They have also improved competition by removing restrictions on merchants.

Review of Card Payments Regulation

During 2015 and 2016, the Bank undertook a review of the regulatory framework for card payments. As part of this process, the Bank released an Issues Paper in March 2015 that noted some developments in the payments system that raised concerns given the Bank's mandate to promote competition and efficiency in the payments system. In December 2015 the Bank released a Consultation Document outlining proposed changes to the standards for card payment systems. The Conclusions to the Review of Card Payments Regulation were published in May 2016, following an extensive process of consultation.

The weighted-average interchange fee benchmark for debit cards has been reduced from 12 to 8 cents per transaction and applies jointly to debit and prepaid cards in each scheme. The weighted-average benchmark is supplemented by a ceiling on individual interchange rates of 15 cents, or 0.20 per cent if the interchange fee is specified in percentage terms. To prevent circumvention of the interchange standards, there are limits on any scheme payments to issuers that are not captured within the interchange benchmarks.

The new interchange benchmarks took effect on 1 July 2017, compliance with the benchmark will be observed quarterly.

See Media Release and some Q&A for further details.

More information

For details of debit card regulations, including designations of systems, standards, interchange fee benchmarks and voluntary undertakings see: ‘Regulations’. Information about consultations and regulatory decisions made in relation to the debit card system can be found here: ‘Consultations’ and ‘Regulatory Decisions’ Several resources are available that summarise credit and debit card regulations. For instance, see: A Guide to the Card Payments System Reforms, RBA Bulletin, September 2010 for a guide to earlier reforms. More recently, the Bank's 2014 submission to the Financial System Inquiry (Chapter 8) and the Bank's March 2015 Issues Paper provide detailed descriptions of the rationale for, and evolution of card payments regulation in Australia since the early 2000s.